Monitoring of charities improving, but problems persist: AG

The Canada Revenue Agency has denied almost $2 billion in charitable donation claims since Ottawa tightened the screws on tax shelter gifting arrangements in 2003, but crooked tax shelters continue to dog the charitable sector, the auditor general reported.

In her Fall report, tabled in the House of Commons Tuesday afternoon, Sheila Fraser said the dwindling number of tax shelter gifting arrangements shows the Canada Revenue Agency has gone a long way in dissuading Canadians from taking part in schemes where registered charities issue bloated donation receipts.

However, she also said questionable arrangements persist, threatening Canadians’ confidence in the charitable sector.

“Although very few registered charities are involved with tax shelter gifting arrangements, their actions could… cause some donors to stop making donations to those charities that are not involved in abusive tax shelters,” Fraser said in her report.

Charitable gifts can be a legitimate tax shelter, but the frequency of overvalued donation receipts — often worth three to four times the value of a donated property — led federal tax regulators to begin requiring tax shelter promoters to register for an identification number in 2003.

Since then 172,300 receipts worth $5.4 billion have been issued by registered charities. The agency began a blanket review of the arrangements in 2006 and as of March 31, 2009, 69,000 reviews led to more than $2 billion in donations being denied.

The tax agency contends that it can only inform the public through general warnings because the Income Tax Act prevents it from disclosing the names of charities involved in tax shelter gifting arrangements or individuals who promote them.

A charity can only be named if its tax exempt status is revoked as was the case last year when New Hope Ministries Institute lost its status after issuing receipts for more than $100 million in pharmaceuticals through the Canadian Humanitarian Trust tax shelter arrangement.

In a complicated web of payments New Hope received $1.5 million from another charity of which $1 million was passed on to the tax shelter promoters, leaving only $500,000 in the institute’s hands.

“Based on the audit results, it is [the Canada Revenue Agency’s] position that the Charity has operated for the non-charitable purpose of promoting a tax shelter,” the agency said in a letter to New Hope at the time.

In her audit, Fraser applauded the progress made by the agency, but said the tax shelter industry still exists, and the agency will have to invest more time a resources to keep on top of the problem.

Draft legislation that would have further limited the practice was first released in 2003, but the bill died on the order paper in 2008.